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Monday, November 6, 2017

$28,684 to $1

Wealth over work

By Gerald E. Scorse, Progressive Charlestown guest columnist

On September 27th, media reports outlined the
tax plan hammered out in secret by the GOP’s so-called Big Six. The morning
of the 28th, the writer Stephen King tweeted his scorn: “Same old same old. The fat man’s busy
dancing while the poor man pays the band.”

The poor man doesn’t really pay the band, but there’s plenty
of reason to second King’s emotion.

The proposals reaffirm the Republican obsession with shoving
more money into the pockets of people whose pockets are already bulging.

The haves, and only the haves, would reap billions
by repealing the alternative minimum tax and the estate tax. More would go in
the same direction by taxing the income of pass-through businesses at 25
percent.

Worst of all, the proposals make not even a gesture toward
eliminating the
biggest single contributor to income inequality in America: lower taxes on
income from wealth than income from work.

Income made sitting by the side of the pool (capital gains
and dividends) gets taxed at a lower rate than income from wages.

For taxpayers in the top bracket, the preferential rate
amounts to a break of roughly 40 percent (23.8 percent on investment income vs.
the top marginal rate of 39.6 percent on ordinary income).

The tax break for the everyday well-off is even greater, 15
percent vs. 28 percent, a savings of over 46 percent.

Candidate Trump promised
a big gesture, ending the carried interest loophole that lets hedge fund
managers mislabel their income as capital gains. They’re “getting away
with murder,” he said. They are, and the crime pays big-time.

It’s true of course that the rich hand over by
far the biggest share of individual income taxes in America. It’s also true
that an ever-greater portion of their income flows from wealth rather than
work.

That means a major tax break on ever-more billions: driving
up the net incomes of the super-rich and the merely rich, driving up
inequality, pushing effective tax rates on the upper reaches so low that Warren
Buffett says his office workers pay at a higher effective rate than he
does.

It also means that work is taxed more than it should be, or
that wealth is taxed too little, or both. Steven M. Rosenthal, a senior fellow
at the Tax Policy Center, frames
the issue starkly: “We’re taxing the
rich much too lightly because we tax capital so much less than labor.”

Trump is a golden example of who strikes gold under the GOP
plan. Bloomberg News denounced
“The Trump Tax Reform’s Pass-Through Boondoggle,” calling it “a great deal for
the Donald Trumps…of the world.”

Leaked pages from the president’s old tax returns show
that he paid an alternative minimum tax of $31 million in 2005—a tax he now
wants to repeal. The Trump family, of course, would benefit “yugely” if the
estate tax gets the ax.

Tax expert and author David Cay Johnston founded a news
service to focus on “what the President and Congress DO, not what they
SAY.”

In an article
on that website, Johnston showed what happens (and what presidents and
Congresses knew would happen) when tax policy favors wealth over work. He used
IRS data to compare “the very highest income Americans in 1961 and 2013 with
the vast majority, the 90%.”

His calculations may surprise taxpayers of all
incomes: in real terms, adjusting for inflation, effective rates have
dropped sharply over those 52 years. The 90% paid an average 9.6 cents out of
every dollar in 1961, but only 7.6 cents in 2013. The 400 richest paid 22.9
cents in 2013 compared to 42.4 cents in 1961.

“That’s a rate cut of 19.5 cents per dollar,” Johnston
wrote, “that’s almost 10 times as large a tax-rate cut applied to a lot more
dollars.” It lifted the 2013 tax savings for the super-rich to an average of
$51.6 million.

The gusher came after-tax. Comparing 2013 to 1961, the
income of the top 400 rose on average by $195.4 million. For the 90%, the
average rise was $6,812. “Now here comes the…ratio that may take your breath
away. For each dollar of increased after-tax income enjoyed by the vast
majority in 2013, the top 400 enjoyed $28,684 more. That’s $28,684 to $1.” (The
ratio was even greater with Social Security taxes factored in.)

Trump’s proposed tax cuts are now masquerading as GDP growth
hormones. Modest cuts, if any, are being touted as a middle-class bonanza. The
real bonanza will stream even more to wealth, not work.

$28,684 to $1. And the GOP wants more.

Author Gerald E. Scorse helped pass the bill requiring
basis reporting for capital gains. He writes on taxes. This article first
appeared under a different headline in the Oct. 27 New York Daily News. It is
reprinted here with the permission of the author.